Santam introduces power surge excesses and exclusions as claims jump

Santam, the largest short-term insurer in South Africa, is introducing mandatory excesses and exclusions on its power surge cover, saying it needs to protect the sustainability of this cover amid a significant increase in claims.

In addition, Santam is tightening its general exclusion for damage caused by electricity grid failure or interruption, saying “a catastrophic event of this nature can no longer be ruled out”.

The changes apply to existing clients from 1 June and are effective for all quotations for new business from 31 March.

The insurer’s power surge claims have increased by about 50% during the past 12 months, and by more than 200% over the past three years, said Andrew Coutts, the executive head of Santam Broker Solutions.

“The changes being made are to help us ensure the sustainability of this power surge cover going forward and to incentivise our clients to take preventative actions that help avoid such losses,” Coutts said.

Power surge excesses and exclusions

Personal lines clients will pay an excess of R2 500 when claiming for power surge, accidental damage to fixed machinery, mechanical, electrical, or electronic damage covered under the Contents and Buildings sections of their policies.

Commercial lines clients will pay an excess of 10% of the claim, subject to a minimum of R5 000, when claiming for power surge damage.

Power surge cover has been removed from the Accidental Damage section of commercial lines policies and must be explicitly purchased as an extension of cover.

The following exclusions will apply to both personal lines and commercial lines policies:

• Power surge damage that occurs because electricity is switched on following loadshedding of more than 12 consecutive hours; and
• Power surge damage that occurs because electricity is switched on following electricity grid failure or interruption.

Clients will not be covered for power surge damage if an electricity grid failure occurs during loadshedding, even if the power is restored within 12 hours of when the loadshedding started. Santam said because electricity grid failure or interruption is specifically excluded from power surge cover, clients do not have cover if grid failure overlaps with loadshedding.

Santam emphasised that the minimum excess will apply in all instances, including to clients over the age of 55, and clients will not be able to reduce the excess by paying a higher premium.

In addition, policy wordings that provided for power surge excesses to be waived if the client had a surge protector have been removed. These include bespoke wordings that allowed for different excess terms depending on the presence of surge protectors.

However, Santam said it was testing the effectiveness of different types of surge protectors, “which will inform any future decisions on both excesses and premiums”.

General electricity grid failure or interruption exclusion

Santam’s general electricity grid failure or interruption exclusion applies to all policies.

In the case of commercial policies, the exclusion is under the General section, which means it applies to the entire policy, including the Business Interruption section.

Santam said the elective extensions to other premises, under the Business Interruption section, namely public telecommunications – insured perils and public utilities – insured perils, will respond when:

• An insured peril occurs at the premises of a public utility or public telecommunications entity;
• The peril causes physical damage at the entity’s premises that results in the loss of supply of its service to an insured who has this extension;
• The loss of supply interrupts the insured business; and
• The loss of supply from the public utility or public telecommunications entity does not affect an area equal to or greater than the municipality within which any business of the insured is located.

The general exclusion includes power surge damage that occurs because electricity is switched on following loadshedding of more than 12 consecutive hours/following electricity grid failure or interruption.

In the case of personal lines, the general exclusion will also include:

• Any damage caused directly or indirectly by electricity grid failure or interruption; and
• The spoiling of fridge/freezer contents because of a total or partial interruption, interference, suspension, blackout, failure, of any electricity supply, irrespective of the duration or geographical extent.

What is meant by ‘grid failure or interruption’?

Loadshedding is when an empowered authority suspends or interrupts the supply of electricity as part of a planned schedule to prevent damage to the electricity grid, whereas electricity grid failure or interruption is an unplanned and unforeseen event.

Santam pointed out that loadshedding itself has never been an insured peril. The only cover that may have responded to loadshedding was personal lines cover for the spoiling of fridge/freezer contents where the power interruption lasted longer than 24 hours. This cover has now explicitly been removed.

Electricity grid failure or interruption means a total or partial interruption, interference, suspension, blackout, failure, of any electricity supply affecting the whole of or any area larger than the municipality (local, district or metropolitan) within which any business/insured premises of the policyholder is located.

Where a grid interruption occurs that is not caused by scheduled loadshedding/interruption, as defined (it is not scheduled and not communicated), it forms part of Santam’s electricity grid failure or interruption exclusion.

The grid failure or interruption exclusion mentions “caused directly or indirectly by the electricity grid failure or interruption”. What does this mean?

“If the damage was caused directly or indirectly by the systemic event – in this case, electricity grid failure or interruption – then there is no cover. If the cause of the damage is far enough removed to be considered to be not directly or indirectly linked to the electricity grid failure or interruption, then there is cover. This will be determined at claims stage and in accordance with terms and conditions of our insurance contract,” Santam said.

It provided the following example: a traffic light is not working because of electricity grid failure and a car accident occurs because a driver jumps the intersection. In this case, the cause of the accident is the negligence of the driver. Assuming all other policy conditions are met, the claim will not be impacted by the grid failure exclusion.

How do lightning strikes affect cover?

Santam said lightning strikes affect policyholders’ cover as follows:

• If lightning strikes your house and causes power surge damage, you will have cover, irrespective of any power surge extension on the policy, because the proximate cause is lightning.
• If lightning strikes an electricity substation and a surge runs through the power lines to your house causing damage, you have cover because the proximate cause is lightning. In this instance, there is no grid interruption or failure, so you have cover.
• If lightning strikes an electricity substation and it causes a grid failure or grid interruption, there is no cover.
• If there is a power surge when the grid is switched back on, there is no cover because it follows electricity grid failure or interruption.

When cover for loss of fridge/freezer contents applies

Santam said its cover for the loss of fridge/freezer contents remains in place, except for the following exclusions:

• Spoiling caused by someone adjusting the temperature control;
• Damage to the refrigerator or freezer;
• Spoiling as a result of a total or partial interruption, interference, suspension, blackout, failure, of any electricity supply irrespective of the duration thereof or its geographical extent; or
• Spoiling as a result of not purchasing or paying for power or any type of fuel.

Examples of when cover is provided:

• Your distribution board accidentally trips, which causes your fridge/freezer contents to spoil because there is no electricity.
• Accidental damage to the plug socket causes a sudden, unforeseen loss of power supply that goes unnoticed for hours. For example, children playing with a ball that knocks the freezer plug out of the socket.
• You unplug the fridge socket to use it for another appliance and forget to plug it in again.

How the exclusion affects fridge/freezer contents cover in a commercial policy

The electricity grid failure or interruption exclusion specifically excludes cover for damage to fridge/freezer contents under the Householders section of a commercial policy, Santam said.

However, if the policy has an extension of cover for fridge/freezer contents, Santam will indemnify the insured following the accidental spoiling of the contents of fridges or freezers (including freezing-rooms and cold stores) inside the insured’s private residence or domestic outbuildings caused by a change in temperature, unless:

• Spoiling is a result of a total or partial interruption, interference, suspension, blackout, failure, of any electricity supply, irrespective of the duration thereof or its geographical extent;
• Spoiling is caused by someone adjusting the temperature control; or
• Spoiling is a result of the power being cut because of non-payment for the power supply or fuel.

The insured amount under this extension is based on a percentage of the Contents insured amount and will increase or decrease with any changes in the Contents insured amount.

Tips to reduce power surge damage

Santam advised policyholders that the following may reduce or eliminate their risk of loss because of a power surge:

• Unplug your devices when the power has been switched off. After the power has been restored to your premises, it should be safe to plug them back in again. This is particularly important in the event of an electricity grid failure or interruption.
• Surge arrestors or surge protection devices may provide protection, depending on the type of surge experienced. The following should be considered:
• The device should have a warranty of at least five years, for which you should receive an installation certificate.
• The device should protect against over-voltage, under-voltage, multiple strikes and lightning surge.